ATHARVA

The Finance Magazine of IIM Raipur

INAUGURAL EDITION
NOVEMBER 2015

CONTENTS
DIRECTOR'S
MESSAGE
FINATIX CHAIRMAN'S
MESSGAE
TOP ARTICLE ENTRIES

01 IMPACT OF US FEDERAL RATE

HIKE ON EMERGING ECONOMIES

SPOTLIGHT
FINANCIAL CRISIS AROUND THE WORLD

SANCHAYAN

CURRENCY WARS AND ITS

05 IMPLICATIONS AROUND THE
GLOBE

FINATIX CLUB EVENTS

OTHER ARTICLES

09 IPAYMENT BANKS
ECONOMY THAT WOULD
14 THE
NEVER BE
SPECIALS

17 SIP EXPERIENCE
19 TAX PLANNING
22 FINATIX CLUB EVENTS
24 CROSSWORD

TAX
MANAGEMENT

(i)

CRISIS

Director's Message

Prof. B. S. Sahay
Director, IIM Raipur
The enthusiasm that the students today have, is appreciated. I am pleased to know
that the Finatix Club is launching the inaugral edition of their annual magazine
Atharva, giving people a chance to find a common platform to share their ideas,
thoughts and experiences in the field of finance.
I believe that starting something and continuing it with the same perseverance is a
quality that takes people to great heights. I hope the hard work of the members of
the Finatix Club in launching this magazine pays off and they continue to work
towards it with the same excitement.
All the best to the entire team!

(ii)

Finatix Chairman's Message

Dr. Vinay Goyal
Assistant Professor
Finance and Accounting
It makes me very happy to see our students take up initiatives that help not just them but also
others. I appreciate the Finatix Clubs decision to come up with a magazine focusing on core
finance in order to share knowledge with their fellow mates.
In todays world of business when replicating technology and strategies is not a big deal, it is the
financial management of a company that helps them perform better. It is today imperative, that a
student of business management understand the nitty-gritties of finance irrespective of which
field they choose to specialize in. I believe this magazine is an appropriate platform to make
students aware of the latest trends in finance.
I hope that the club continues to work towards this initiative with all sincerity, like its previous
endeavors and succeed in making Atharva a flagship magazine of IIM Raipur.
I wish them all the best and hope you learn and enjoy reading this magazine.

(iii)

ARTICLES

"The greatest part of a writers time is spent in reading, in order to write; a man will turn
over half a library to make one book" - Samuel Johnson

Atharva Winner:
Impact of US Federal Rate
Hike on Emerging Economies
- Hariprasad Kamath
Kakumani
Manish Chowdary
NMIMS Mumbai

Runner Up:
Currency wars and its
implications around the globe
-Akankhya Jena
XIMB
Consolation Prize:
Payment Banks
-Rishav Mandal
SIBM Pune
The Economy That Would
Never Be
-Aayush Singh Sengar
IIM Raipur

(iv)

Impact of US Federal Rate Hike on Emerging Economies

September 17, 2015: An analyst at a stock broking firm in Mumbai is waiting anxiously in front of his
laptop. There are people celebrating the Ganesh festival outside. But, he is busy with work.
Reason? At the other side of the globe, the United States Federal Reserve is about to announce its
decision on a much anticipated interest rate hike.
This story repeats itself in the worlds major cities; especially in the emerging economies. The news
of a fed rate hike is usually followed by a crash in the stock markets in many countries. This explains
the restlessness of our Mumbai based analyst and his counterparts around the world. After all, why
does the US Federal rate hike creates anxiety in these markets? Lets explore the possible reasons.

Why will the Fed hike rates?

More than six years ago, when the US economy was in deep slump, the Federal Reserve decided to
bring down the benchmark interest rate to near-zero as a means to boost the economy (Figure 1).
This reduction enabled the businesses to acquire loans at a lower cost, increasing the economic
activity. Rate slash, along with the Quantitative Easing (QE) program, enabled the struggling US
economy get back to growth.

Figure 1 United States Federal interest rate over the years

Source: www.tradingeconomics.com | Federal Reserve
When the Fed raised interest rates last time in 2006, Twitter was just a two-month old startup and
Facebook was yet to graduate out of college. Like a doctor who reduces the medication as the
patients health improves, the Fed needs to raise the interest rates eventually as the economic
growth stabilizes. Otherwise, the borrowing costs will stay below normal and inflation may blow
out of proportions.According to the statement by Janet L. Yellen, the chairwoman of Federal
Reserve, the decision to not hike the rates in the latest review was a close call. And the central
bank is expected to raise the rate by the end of this year.

1.

Why does the emerging market fear a rate hike? The dollar hangover

As the US government bond yield reduced to a mere 1.5% over a 5 year period, the dollar investors
started to seek opportunities elsewhere. This led
them to the high growth markets in emerging
economies. The firms in Russia, Brazil, Turkey,
South Africa, India, etc. started to issue dollar
based bonds. For example, India based Lodha
group which marked a debut in the dollar bond
market and the Brazilian oil giant Petrobas which
enjoys government backing. By borrowing dollars
at a rate which is many percentage points below
the credit rate in local currencies, these companies
have blown up the profit balloon big time. As
shown in Figure 2, the dollar-denominated
corporate bond issues have increased by around
150% over the last 3-4 years.
The worry is that these companies have a very
small share of dollar based revenue. As the energy
Figure 2: US dollar denominated corporate prices fell, companies like Petrobas started to see
bonds issued by year, Source: The Wall Street lower-than-expected dollar inflow through
Journal
operations before amassing the debt. The dollar has been appreciating ever since the Fed stopped
its quantitative easing program (Figure 3). When the rate hike strikes, its going to be extremely
difficult for these companies which have a major part of revenue in local currencies to finance the
dollar debt, as their currencies plummet against the green bills
During the time of the near-zero rate regime, it was a low
cost proposition for developing countries like Brazil,
Turkey and South Africa to fund their current account
deficits with borrowed dollars. According to the Bank for
International Settlements (BIS), between 2009 and 2014,
the dollar denominated credit to the developing world in
the form of loans and bonds has more than doubled
from around $2 trillion to $4.5 trillion. The lower cost
attracted even the countries which have low trade gaps
like China - to the party.
Figure 3: US dollar vs emerging market currencies,
Source: The Wall Street Journal

2.

But, in the world of economics, there is no free lunch. When the rate rises, these huge dollar debts
will become unsustainable due to the higher interest payment in dollars. The cost of financing the
debt will widen the fiscal deficit. For example, a Brazilian firm borrowing $1 million through a 10
year bond with a 5% coupon is expected to pay 2.65 million Real ($1.5 million) over the bond
period. But the Real went down 61% against the dollar since then. The payments are now around 6
million Reals. Investors will pull their money out from such government and private bonds which
have become unsustainable. The capital flight and the amassing debt will form a vicious cycle
which will push the emerging economies right into a crisis.
This has been proven time and again by the statistics. Figure 4shows the strong inverse
relationship that the share prices in the emerging markets have with the US dollar. Rate hike from
the Fed will strengthen the dollar, undermining the wealth of investors in emerging markets by
trillions - which explains our stock analysts restlessness.

Is there something to look forward to?

Yes. Its not a completely hopeless situation for the developing countries. With the right kind of
policies, they can insulate themselves from the impact of Feds actions.
The high interest rate signifies a strong US economy with a surging demand. Besides, a strong
dollar ensued from the rate hike is a great opportunity for emerging markets to drive exports to US.
But, this will require ardent involvement from the government to boost their export oriented
industries by providing the necessary infrastructural support.
But, the export orientation has to strike the right balance with maintaining strong domestic
demand. In the end, the countries which have a high growth potential in domestic markets will see
highly enthusiastic investors putting in money irrespective of monetary changes elsewhere. India
is an example of this phenomenon. The latest data shows that Indias foreign exchange reserves
rose by $2.359 billion to $351.39 billion. (Figure 5).

Figure 5: India forex reserves Source: www.tradingeconomics.com

3.

Another way, in which India has again set an example, is to encourage domestic savings. Indias
gross domestic savings during 2007-08 was as high as 36.8%. This high proportion of savings
helped India to ride the recession wave since the economy did not have much dependence on the
dollar funds from outside. But, by 2012-13, it declined to 30.1%[6], leading the government to
depend more on foreign investment to finance growth. Consequently, a Federal rate hike can put
some pressure on the foreign reserves.
Its an unavoidable fact that US is still the worlds leading economy and the Federal Reserve is the
most influential policy maker. Janet Louise Yellen presides over a huge $17 trillion dollar economy.
Economic analysts across the world wait for every small piece of data that comes out of the Federal
Open Market Committee (FMOC) room, from where policy decisions are made. This time, it was not
different. Many markets even responded in anticipation of a rate hike in September. However,
FMOC has delayed the liftoff a Fed term for rate hike - for the time being due to a weaker than
expected price rise and employment data[7]. But, when eventually the Fed decides to go ahead,
the impact across the globe will be larger, as the debt continues to pile up in the developing
countries. In order for them to ride the rate-rise, bold policy measures need to be taken which
transforms institutions from merely chasing easy money to being development oriented.
HARIPRASAD KAMATH,
2nd Year MBA
SBM NMIMS
Mumbai

KAKUMANI MANISH CHOWDARY

2nd Year MBA
SBM NMIMS
Mumbai

4.

Currency Wars And Its Implications Around The Globe

Chinese yuan devaluation will have a global impact and provoke a huge currency war. Most of
us have been reading these headlines since last month.The Chinese central bank's (PBOC)
decision to devalue the Chinese currency by 3pc within 11-13th Aug sent shockwaves through
global equity markets.

So question arises why the world shocked by this move was and what exactly is a currency
war?

A currency war which is also called competitive devaluation is a situation in which a group of
nations intentionally depreciate the value of their currencies with the target to boost their
domestic economies and they do it simultaneously. And floating exchange rates are prevalent in
the current situation, where currency values are influenced by market forces, depreciation is
usually crafted by economic policies of a nation's central bank.

Why a nation would depreciate its Currency?

Weak domestic
currency makes exports cheaper
and competitive and more
exports fuel economic growth.

What did China do and why?

Makes imports expensive, so

consumers go for local cheaper
alternatives
which provides fiscal monetary
stimulus to boost domestic
economy
&

Overall trade gets a boost

and leads to faster GDP
growth and lower current
account deficit

The Chinese yuan traded at a new low of 6.4510 per U.Sdollar in August this year, which is its lowest
since August 2011 and lost 3.5 percent against the U.S. dollar in China in two days, and approx. 4.8
percent in global markets after People's Bank of China (PBOC) tweaked the calculation of the
reference rate around which the yuan is permitted to trade in a 2%age point band.The PBOC said now
calculation of yuan would be done on a daily basis considering the market forces and even closing
price of previous days stock market.
The Chinese exports market has been losing its competitiveness because of weak demand in global
demands and increase in production costs due to Chinese manufacturing wages. Exports fell by 8.3%
in July. So although PBOC has been reassuring that it wont let yuan fall more , global markets have
become apprehensive that China is stimulating its exports market with cheaper and more
competitiveprices and would continue to so for some time.

5.

A similar dismal situation is with investment as well, another important growth driver for the Chinese
dragon. The fixed asset investment growth or how much companies are investing to increase their
productive capacities is at an estimated mere 4 to 5 per cent, from 6.6 per cent in 2014. Allowing for
the depreciation of existing plant and machinery, it is possible that Chinas growth in net capital
formation is at or below zero.

Are we heading towards a Global Currency War?

The yuan has been an anchor of stability for emerging markets currencies and has protected the
latter from depreciation against US dollar.Now the Chinese episode has created unrest and volatility
particularly among these currencies which have also depreciated against the US dollar.
It is believed that the US Federal Reserve would also go for interest hike soon. So Chinese growth
slowdown combined with this depreciation and possible US interest hikes could bring turmoil to
global currency markets and skew the global asset allocation in favour of US dollar and US
Treasuries against the emerging currencies.
In Asia Pacific region, some of the most vulnerable currencies such as the Malaysian ringgit and
Indonesian rupiah have significantly depreciated against the US dollar already. There are chances
that the central banks of these economies might go for macro-prudential measures to stabilise their
currencies in casethere is sharp depreciation in near future.
The net result is that China's relative competitiveness against the emerging markets has not
changed much after its devaluations.

Beggar Thy Neighbor

Since currency devaluation seems an escape route to boost export competitiveness it can be said
without any second thought that if nation X devalues its currency, nation Y will soon follow suit, and
then nation Z, and so on. This is the theory of competitive devaluation.
This phenomenon is also known as "beggar thy neighbour"which refers to the underlying fact that a
nation which follows this theory is aggressively pursuing its own self-interests at the cost of
everything else.
Effect on US and EU economies due to devaluation along with expected Fed interest hike
The US dollar has already appreciated considerably against many of the currencies of its strategic
trade partners, which include the euro and the yen, as well as several developing markets'
currencies. As the Fed begins raising interest rates, there would be further appreciation of US dollar
against the euro, leading to increased Eurozone export competitiveness in the US market.
As a result of which, US export competitiveness has steadily reduceddue to higher prices with the
strengthening of US dollar and might dip further.And now with Chinese yuan devaluation followed
by depreciation of many emerging markets currenciesthis issue will be aggravated.

6.

Effect on India

The Indian rupee is already reeling under pressure due to US dollar strengthening. As per
ASSOCHAM, these situations could start a full-fledged global currency war and for India, mightcause
a "triple whammy" as rupee volatility might rise, the exports would shrink and there will be Chinese
goods dumping in Indian markets.
Here's how India will be affected by the Yuan Devaluation

1) Rupee Volatility:
Depreciation In
Rupee

Force RBI to
continue with high
interest rates

As India already has a

Current Account
Deficit, this will rise &
further pressurize the
Rupee

2) Pressure on exports:

Normally falling rupee should have helped domestic exports, which have in contrast shrunk for
seven straight months until June 2015 and are not expected to rise too because of global
slowdown. Apart from this, China and India compete in several export item categories such as
textiles, gems etc. will not only affect domestic exporters but also Indian exporters would face
threats from Chinese counterparts.The slowdown in Chinese economy - which is among the top
five markets for Indian exports is another major issue for Indian exporters.

3) Dumping of Chinese goods:

There is high probability that Chinese devaluation may provoke China to dump its goods into
Indian markets and thus negatively impact domestic manufacturers.

Negative Effects of a Currency War

On a concluding note, the countries should realize currency depreciation is a myopic approach
but not the panacea for all economic problems at least not in long-term. Currency devaluation of
Brazil is a case in point. The Brazilian real has dipped 48% since 2011, but such steep devaluation
has failed to solve other issues such as falling crude oil and commodity prices, and increasing
corruption. Consequently, IMF has forecasted the Brazilian economy to contract by 1% in 2015,
after bare growth in 2014.

7.

So what are the negative effects of a currency war?

Currency devaluation may affect long-term productivity, as imports of latest capital equipment and
machinery become costly for local businesses. Therefore, unless currency depreciation is
supported by genuine and robust structural reforms, the productivity will eventually suffer.
The degree of currency depreciation has to be well thought of and planned keeping in view the
consequences otherwise higher than required rate may eventually cause capital outflows and rising
inflation.
A currency war may finally create greater protectionism and formation of trade barriers, which
would hinder global trade.
Competitive devaluation may make the currency volatile, which could lead to greater hedging
costs for companies and thus discourage foreign investment.
China is one of the leading global trade powerhouse and such desperate measures might create
deflationary pressures all through .
AKANKHYA JENA
2nd Year MBA
XIMB

8.

Payment Banks

"Inclusive growth should not be a mere slogan but a fundamental driving force for sustainable
development." (Pranab Mukherjee, President of India)

20th August, 2015, Morning. All the business newspaper were flashing with the news of 11
companies getting licences from RBI for a new kind of bank, named Payment Bank. This is the
biggest step recently taken by the Central Bank for financial inclusion of all the unprivileged,
underserved and poor people of the country as they are the prerequisite for poverty reduction and
economic development.

What is a Payment Bank?

It is a type of non-full service bank which can only receive deposits and provide remittances. It
cannot carry out lending activities. It is mainly targeted towards migrant labour workforce, low
income households, small businesses, other unorganised sector entities and other users. It will
provide small saving account and facilitate money transfers by enabling high volume-low value
transactions in a secured technology-driven environment.
It is basically a kind of Digital Wallet or Mobile Currency. It is more like a Pre-paid Instrument which
will offer interest on deposit.

History

On 23rd September, 2013 the RBI announced appointment of a Committee on Comprehensive

Financial Services for Small Businesses and Low-Income Households under the Chairmanship of Shri
Nachiket Mor, Director of Central Board, to frame a clear and detailed vision for financial inclusion
and financial deepening in India. [1] Among its various recommendations, it recommended the
formation of a new category of bank called payments bank. Initially there were 41 applicants. Finally
on 19 August 2015, the Reserve Bank of India gave "in-principle" licences to eleven entities to launch
payments banks:
Aditya Birla Nuvo
Airtel M Commerce Services
Cholamandalam Distribution Services
Department of Posts

9.

FINO PayTech
National Securities Depository
Reliance Industries
Dilip Shanghvi, Sun Pharmaceuticals
Vijay Shekhar Sharma, Paytm
Tech Mahindra
Vodafone M-Pesa

Primary Features of Payment Banks

Acceptance of demand deposits from individuals, small businesses and other entities. No NRI
deposits are accepted.
It will initially be restricted to holding a maximum balance of Rs. 100,000 per individual
customer. After the performance of the payments bank is gauged, RBI may consider raising the
maximum balance limit.
Issuance of ATM / Debit Cards. However it cannot issue credit cards.
Payments and remittance services through various channels including branches, ATMs,
Business Correspondents and mobile banking.
Provide distribution of mutual fund units, insurance products, pension products etc with the
approval of RBI.
Required to invest minimum 75 per cent of its "demand deposit balances" in Government
securities/Treasury Bills with maturity up to one year that for maintenance of Statutory Liquidity
Ratio and hold maximum 25 per cent in current and time / fixed deposits with other scheduled
commercial banks for operational purposes and liquidity management.
The minimum paid-up equity capital of the payments bank shall be Rs.100 crores. It is required
to maintain a minimum capital adequacy ratio of 15% and have a minimum leverage ratio of
3%.
Commercial Banks could have Payment Banks as their subsidiary.

Why Payment Banks?

Over the last 15 years, we have witnessed the ultimate digital revolution in India through mobile
phones. India has around 930.20 million mobile subscribers which is approximately 74.55% of
the total population among which 382.50 million subscribers belong to rural India. [4] With the
advancement of technology, the mobile phone prices are getting cheaper and various studies
shows that mobile penetration in the upcoming few years in rural India will increase in
substantial number. Also in the 2014-15 Union budget, the government committed Rs 500
crore for building infrastructure under the National Rural Internet and Technology Mission, with
an additional Rs 100 crore being provided, for improving e-governance with the aim to increase
tele-density in rural areas.

10..

Despite having so many initiatives taken by Government and Central bank, India has only 54%
banking penetration until 2014. But thanks to Pradhan Mantri Jan Dhan Yojana scheme
launched by Indian Government by the end of January 2015, it had led to the opening of 125
million new bank accounts. But still among these newly opened accounts, around 72 per cent
of these accounts show 'zero balances'.
To take advantage of these two things i.e. high growth in mobile phone technology in future and
low penetration and rising NPA of banks, RBI introduced payment banks. It will bridge the last few
miles through mobile where human cannot reach. But doesnt it sound more like a Pre-paid
Instruments? Actually it can do a lot more other things than a PPI can. It can also be used to draw
money from point of sale terminals, transferring money from one mobile to another, access to
investment and LICs.

Success of M-pesa in Kenya

M-pesa is a mobile-phone based money transfer and micro financing service, launched in
2007 by Vodafone for Safaricom and Vodacom in Kenya.
It is more like a PPI rather than Payment banks as it does not give interest on the money
deposited. In a very short time, it became a big hit. It is now used by 19 milion of Kenya's

11.

Kenya's 44 million people, including more than two-thirds of the adult population, and a quarter of
the country's economy flows through this service.

How Payment Banks could change the existing system?

Your mobile will become your bank account; it will become the virtual ATM and small-payments
cheque-book. Every time you dont need to go to the brick and mortar bank branches for all your
activities.
Payment banks may start offering zero-balance accounts and low-cost services. It may offer
higher savings bank rates of 5-7 percent of their deposit.
The phone companies in particular have large distribution networks throughout India, even in
rural locations. People will be able to easily convert cash into virtual money and vice versa. The
small convenience shop in a village that sells mobile recharges could serve the purpose of bank
branches.
The Department of Posts is also important for that same reason - the Department of Posts can
reach every village, and connect people to banks. The postman you meet every day could be
your banking relationship manager.
People who belong to very remote places and working in big and small cities can easily transfer
money to their families back home by just pressing a button.
It can be integrated with savings bank accounts via IMPS and NEFT transfers. The payment
banks ATM or debit cards will also work on all banks' machines.
It may be used to buy goods and services digitally. It can also provide various mutual funds,
insurance etc to customer.
Direct transfer of wages and subsidies to the unorganized sector employees digitally can be
achieved via this. Jan Dhan Yojna Scheme can truly be accomplished.
It can only invest in Government securities. So its very safe. Also it cannot lend to others except
Government. So there is no fear of NPA unlike other banks.
The mission of moving towards cashless economy can be achieved.

12.

Conclusion:
India is among the most cash-intensive economies a cash-to-GDP ratio of 12%, almost four times as
much as other emerging markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%). In
fact Indias love for cash has cost RBI to spend annually around Rs 21,000 crore for reissuing and
replacement of old notes. [8] In online sphere also, COD accounts for almost 50 to 80 per cent of
online transactions in India.
Previously after the grand success in Kenya with M-pesa, Vodafone tried to launch it partnering with
HDFC and ICICI bank in India, but it was a not a great success story.
As of now banks cannot be replaced fully in our country. But as RBI has issued licence to this top 11
industry veteran for payment banks and if they can execute their strategy in a proper and structured
way, it will ensure the equitable finance for all the people of the society.
RISHAV MANDAL
1st Year MBA
SIBM, Pune

13..

The Economy That Would Never Be

Little did the world know that what started as a revolutionary mayoral election in the timid county of
Sevastapool would months down the line turn into the worlds largest nightmare, with Uncle Sam
locking his horns with the Russian Bear, then the NATO protocol and the trade and economic
sanctions, the Gas crisis and Gazprom. So what exactly happened in Crimea and why did the world
break their backs for a single annexation? Agreed there is democracy at stake and so is
Independence but then again the people wanted to join Russia, keeping everything aside(the
political and humane aspect) there is a large financial and economic impact that blew Ukraine to
shreds. This not so famous stretch of Crimea made them lose something more than just pastures
and probably shifted them back a couple of decades . And please dont just believe me, the
numbers speak for themselves. Ukraines economy lost 6.8% last year and 9% (expected) this year
totalling roughly 16% in two years. Through Crimea alone, Russia has seized 4% of Ukraines GDP
.The net of all of Eastern Ukraine under Russias control as of now accounts for 10% of Ukraines
GDP. Moreover the unstability in the region has caused Donbas to reduce its production by around
70% costing Ukraine 7% of its GDP. Ukraine being an exporter of steel, machinery and agricultural
goods to Russia has had to reduce exports by 70% due to trade sanctions, causing an impact of
around 18% in net exports and a decrease of 6% in the GDP. Being a war zone, the FDI evaporation
has costed Ukraine 3% of their GDP. Leaving Crimea aside, this crisis has caused the economy to
shrink by 16% of GDP. Now coming to Russia and how these sanctions could not just deter Russia
but also push Europe deeper into recession. Taking the case of the 1998 financial crisis that not
only pushed Russia into deep depression but also led to the fall of Argentina, as investors became
skeptic of the emerging markets, and then the fall of LTCM took tolls on the US and European
economy as well. The restrictions on the Russian banks operating in US and Europe appear modest
as of now. The banks still have the liberty to access money markets and can use the central bank for
help and can even cover their short term borrowings. More importantly, European banks have
extended $268 billion to Russian firms that hold a significant amount of Russias euro
denominated assets.

14.

Thus, the stress at this juncture could lead to Europe easily sliding back into recession. So to handle
all of this and the mess that the world has gotten itself into, there is only one solution. If the egos of
world leaders is satisfied and they dont want to play a game of chicken with Putin over global
financial stability, I believe they should come together and figure out a route of sanctions that
entirely impacts the Russian economy focusing on energy, natural resources and the military sector.
Agreed its a bit mundane and slow but you never tackle a bear with agression rather by tactics.
AAYUSH SINGH SENGAR
1ST Year MBA
IIM Raipur

15.

SPECIALS

"Economics is all about consumption. People either spend money now or they use financial
instruments - like bonds, stocks and savings accounts - so they can spend more later."

Summer Internship
Experience at Larsen and
Toubro.

How small firms should plan

their taxes?
Increase your knowledge of
finance terms through
crossword.

Summer Internship at L&T

L&T house,
Ballard Estate, Mumbai
Induction @ LDA, Lonavala.
I was full of excitement when I started my maiden trip to Lonavala from my hometown Durg & mind
you i am not writing any travelogue its actually the way internship at L&T starts. The 3 days stay at
the Leadership Development Academy of L&T was full of fun with a lot of team building activities,
lectures from industry experts & overall it was quite a refreshing & rejuvenating experience amidst
the beautiful landscape, picturesque & serene environment of twin hill stations of Lonavla Khandala & the journey via Pune Mumbai expressway on our way to Mumbai.

Danish Engineers & their startup

After the induction program we departed to our respective locations. I feel lucky that I got my
internship location at a historic place from where L&T actually originated i.e L&T House. This is the
place where two danish engineers started this company by taking some space on rent & later tookover the whole building once their startup the then L&T proved to be a success.

My first encounter with Finance in real life.

I got the opportunity to work in the Corporate Finance department. On the first day, I met my mentor
& he was kind enough to introduce me to all the staff members in the department so that I can feel
comfortable. My mentor allotted me a project & told me about his expectations. He assigned me a
submentor/buddy, a member from his team to take further inputs from. I got a gift of 3 thick & bulky
books which were named Annual reports of L&T & its subsidiaries to start-off. It took me around a
weeks time to actually figure out & define the structure & action plan for covering the distance from
origin to destination. My sub mentor helped me a lot & provided useful insights to fix the otherwise
impossible looking jigsaw puzzle.
Every day while leaving from office to catch my local train from church gate to lower parel, I felt like
I have climbed one more step in the field of finance, the project pushed me to apply all the
classroom concepts that I had learnt during my first year @ IIM Raipur. I was never more thankful to
a case study based approach of my college than now, as one of the cases (Midland energy case
from FM 1) came to my rescue in preparing the structure for my project. The next challenge was
number crunching.

Bloomberg Terminal

The big black monitors with some random numbers in red & green flashing on it, wired with some
weird-looking keyboards always attracted my attention in the office but I chose to ignore them.

17.

The next challenge came in my project when I had to gather some real time data globally. At this
time I was asked by my sub-mentor to take the help of Bloomberg Terminal. Once I learnt the basics
of using the terminal with the help of my co-intern, I used it to gather all the data that was required &
this formed the core of my project.
Once all the pieces of puzzle was put into excel sheet, number crunching started & led to
conclusion & recommendations in the form of a ppt. & a report, which i presented to the
management. There can be nothing more satisfying than your mentor appreciating your findings.
Besides the project there is always more
to life than work when you are at Mumbai.
Right from spending your evening at
Marine drive enjoying the gentle breeze &
bustling sound of water hitting the rocks
to the weekend must visit places like
Elephanta Island, Juhu beach & many
more, not to forget the food joints like
Caf madras,Bhagat Tarachand etc. &
humble street food that you cannot avoid
like Vada-Pav, Dabeli, Aam ras & Puri.

Key Learnings

In finance you will deal with lots of data spilling over from multiple tabs of excel & you are gonna fall
in love with your excel sheet but please remember that findings have to be presented in a clear,
concise manner to the management as they are neither interested nor do they have the time to
thoroughly check your excel & this is not an easy task.
The key learning of my internship was not confined to finance domain but I learnt a lot from
Mumbaikars as well. The 3 most prominent ones are discipline, honesty, & fun-loving attitude.
As it all wrapped up & I was leaving for IIM Raipur to begin a new term, I felt more confident &
matured.
SWAPNIL JAIN
2nd Year MBA
IIM Raipur

18.

Tax Planning For Small Firms

Businesses are started primarily to earn profits out of the money invested as capital by the owners.
Every penny has a cost associated with it. Thus every penny saved reduces the burden of debt and
attributes towards lower cost of interest and financial charges. In profit sharing model amongst
owner and government , taxes has huge impact on the way financial transactions are routed. Tax
consequences varies from different nature of business transaction and thus they cannot be ignored.
Tax evasion is a crime. Every penny saved today by evading tax will lead to mental tension and
ultimately when the authority finds it, you have to pay hefty penalty. It is like a hanging sword in
your day to day life. Thus it is important to plan your taxes rather than evade them.
The vital and inevitable decision before starting any business or profession is the decision to
choose appropriate business structure in consideration of the business model. The different types
of possible business structures are Partnership Firm, LLP, Private Limited Company, Public Limited
Company, Cooperative Society, and Joint Venture. However, for the purpose of Income Tax Act,
besides the above types of constitution, other possible structures are Body of Individuals (BOI) and
Artificial Judicial Person (AJP).The decision is vital since every constitution offers different tax
advantages. For e.g: Advantages of LLP structure over a Partnership Firm or a Private limited
company (Pvt ltd Co) are as followsLimited Liability of Partners in LLP as compared to unlimited liability of Partners in Partnership .
Dividend Distribution tax (DDT) is not applicable for LLPs while companies have to pay DDT at
16.609%. However, Dividend distributed is not an eligible deduction as per Income Tax Act,
1961. Whereas, LLP can provide Interest on Capital contributed by Partners @ 12% p.a, which
is tax deductible.
LLP enjoy the status of body corporate like companies.
There is no upper limit on number of partners in LLP, whereas in Partnership firm, maximum
partners are 10/20 and maximum 200 members in case of Pvt Ltd Co.
Following things should be kept in mind while filing your returns :

1. Create IT file in the HUF (The Hindu Undivided Family) capacity for the purpose of IT Act:

Remember to create HUF the moment you marry. It is the best tax saving avenue undoubtedly. By
forming HUF, a separate entity can be created so that the entire income gets distributed between
your business and this newly created entity. This helps in reducing the tax outgo from the total
income. Although, HUF comes into formation as one gets married, the birth of a child completes the
process for claiming the benefit legally. However, one need to be careful and do not utilize this for
tax avoidance. Consult a CA to know the areas for harnessing the tax benefits.

2. Parallel Growth in Net-Worth:

Let your Net-worth in Financials grow while you rise in career, age, financial situation and status.
Growth in Net-worth is a measure of sound financial health. The correct approach in managing

19.

every penny of finances is: Save before spending. Residual savings after spending is not real
savings.

3. Claiming all applicable deductions and exemptions:

a. Deduction of business set up cost (Preliminary expenses):

The preliminary expenses (capital expenditure incurred in setting up your business) can be claimed
as deduction under section 35D of the Income Tax Act, 1961 by an Indian Resident company. The
examples of preliminary expenses are
- Expenditure related to preparation of feasibility & project report, conducting market surveys
and engineering expenses incurred prior to commencement of business are allowed.
The deduction is allowed in five equal installments in each of the five successive years beginning
with the year in which the business commences.

b. Deduction for Home cum Office:

If you want to opt for home as your office, you can deduct the related expenses like depreciation,
property taxes, electricity bills, etc. against business/profession revenues, but you might have to
forgo the exemption on long term capital at the time of sale of such office (residential premise)
offered by section 54 or 54F.

c. Business expenses:

The expenses incurred in running any business is allowed as deduction against revenues
generated. This implies that any expenditure incurred lets say Rs. 100 may save tax up to Rs. 30.90,
depending upon the tax bracket in which the assessee falls. One should maintain proper records of
all expenses so that you can claim appropriate deductions.

d. Charitable donations:

The amount donated towards charity attracts deduction under section 80G of the IT Act. This
deduction is available to all the assessees i.e. even to companies. However, donations made to
prescribed funds and institutions only qualify for deduction. You must get a stamped receipt from
the institution to claim deduction.

e. Housing Loan:

By taking a housing loan a deduction of Rs 1.5 lakh annually on the interest repayment can be
claimed from the personal income Under Section 24B. If its a second house then there is no
maximum limit and one can claim the deduction of entire interest annually from their income.
f. Family managed businesses:
Engage the family members as employees on payroll. The Remuneration paid for the skills and
support offered is an eligible business deduction from Business Income. If the property belongs to

20.

family members, provide for Rent or Lease Charges in financial books. This helps in creating strong
tax records which are helpful while applying for loans. Also money so paid can be reinvested into
the business which could yield family members interest on the loan. This arrangement brings dual
benefits for a family.

4. Maintaining proper records:

Maintain accurate records at all times, and keep all your invoices and receipts in a safe place. The
books of accounts and other documents are to be kept for at least 6 years from the end of relevant
assessment year. Any expenses without admissible supporting /proof run the risk of inadmissible
deductions leading to additional taxations.

5. Provisions of Income Tax Act that affects regular operations in the business:
Aggregate Cash payment should not be made to a person in single day exceeding
Rs.20, 000/-.
Aggregate Cash Payment limit for assessee engaged in business of plying, hiring, or leasing of
goods carriages is Rs. 35,000/- instead of Rs 20,000/-.
Aggregate Loans, deposits and Immovable Properties transactions should not be carried out
above Rs. 20,000 in cash. The mode of transaction allowed is by way of account payee cheque
or account payee bank draft or use of electronic clearing system through a bank account.
Business loss can be carried forward to Next 8 Years.
Basic Exemption Limit for individuals for F. Y. 2015-16 is Rs. 2,50, 000
Basic Exemption Limit for Senior Citizen i.e. above 60 years age is Rs. 3,00,000/-.
Basic Exemption Limit for Super Senior Citizen i.e. above 80 years age is Rs. 5,00,000/-.
You should always match your TDS deducted with 26AS form available on IT website. If any
TDS deducted is not visible in 26AS form, you will not get its credit.
Advance Tax is to be paid if Tax Liability during the year exceeds Rs. 10,000/-.
12% of Surcharge is applicable if Income Exceeds Rs. 1 Crore.
E-filling of return is compulsory if income exceeds Rs. 5 lakhs.
Accurate Stock Valuation should be done on 31st of March.
Thus one should always file the IT returns regularly and consult an expert before entering into
any of the above means to save taxes.
MUKUND KHATOD
1st Year MBA
IIM Raipur

21.

Finatix Events
VARDHUSHIK: Finatix conducts this event for those who
aspire to be the future investment banker. It allows
participants to make perfect pitch book for merger and
acquisition. We conduct this event during our cultural
and management festival Equinox.

MULYANKAN: This is another event that club conducts

during Equinox. It tests the case solving acumen of

students. A panel of experts judge their performance and
accordingly they get the award.

ARTHAYUKTI: If you aspire to be a wealth manager of any big financial institution then this is the

right platform where you can test your wealth management skills and get evaluated by experts. Even
this event during Equinox by Finatix.

OUTCRY: No event could be crazier than this, where

newly admitted students of the first year came together

on the floor shouting and trading their shares. It is a
floor trading event of Finatix. It gave them an
opportunity to test their ability to interpret the real
world situations and how theyimpact their share prices.
And above all it gave them an experience which was
incredible.
This year 15, six member-teams participated for the
event. The team DABBUMALIK (Navinkumar,Karthik S,
Dinesh Venkatesan, Akanksha Rajput) got the first
position.

ARTHAGYAN: The national level quiz

competition, one of the core events of Finatix,

which actually tests the financial knowledge of
participants who are from the top B-Schools of
India.
Quiz was organised on 6th September on the
platform provided by dare2compete.
Vishal Manikandan and Janhavi Jilhare of IIM
Raipur were declared as the winners.

22.

Finance Interest Group for Investment Fund: Our club came up with a very innovative idea of

creating a platform where you can learn and share knowledge about the stock markets, trading and
investment. They do investment on real time basis on the real market scenario.

SANCHAYAN: Our club has taken a noble initiative

of promoting financial inclusion in the villages of

Raipur. It is aimed at generating awareness about
various government schemes that empower people
financially and we also make them aware about
various investment plans which could help them
improve their financial status.
This year we conducted Sanchayan in two villages
Mujgahan and Datrenga, on 13th September 2015
and 18th October 2015, respectively. Sanchayan
was all over news this year. Prominent daily
newspapers and websites - Daily Pioneer,DainikBhasker, Hitavada, HT Media, Bloc campus and
careeranna.com had published articles on the event. Raipurs local FM channel MyFM had
interviewed the club members to know more about Sanchayan. This helped us extend our reach to
a wider audience.

23.